The Making Tax Digital Roadmap

Making Tax Digital (MTD) – three little words that have created much fear and confusion amongst the small business community. So what’s it all about; what do you have to do to prepare and how does it affect the way you currently submit VAT?

If you are one of the thousands of small businesses currently using an accounting software such as Xero or Quickbooks to keep records and submit VAT returns – many of the changes will be happening behind the scenes as providers tweak their systems to meet the MTD requirements. If however, you are using a paper ledger, spreadsheet or picking random figures from the sky each quarter, the change will be significant, but not impossible.

We want to help small business owners understand the changes that are coming their way on 1st April 2019 and simplify the vast array of often contradictory guidance being provided. As part of our mission to demystify MTD we have created a Making Tax Digital Road Map to help you on your travels to MTD utopia.

We recommend our downloadable guide for businesses who have received a letter or email from HMRC telling them they are eligible to join the MTD pilot and are considering their next steps. We have also collated a number of key questions and facts about the MTD process and what these changes mean for your small business in an easy to understand format, which can be found below.

Key Making Tax Digital (MTD) Questions Answered

What is Making Tax Digital (MTD)?

Making Tax Digital or MTD, is the requirement of all VAT registered businesses to submit their VAT returns to HMRC using approved software.

Who does MTD effect?

MTD effects all businesses who have an annual turnover (income from day-to day-activities) above the VAT threshold of £85,000.

Why is MTD happening?

HMRC dreams of operating the most digitally advanced tax system and being a leader in it’s field. HMRC believes that MTD will help ease the filing burden for many small businesses, reduce mistakes caused by manual entry on VAT return forms and also reduce tax evasion.It’s part of a wider plan to bring in new systems for Corporation Tax and Self Assessment.

When is MTD happening?

MTD is happening now with open pilot testing but officially 1st April 2019.

Are there any exemptions to MTD?

Exemptions do exist but these exist for reasons related to religious beliefs, difficulty using systems and businesses in rural areas. Some businesses are also subject to a deferral period of six months. This means that they will not be required to submit VAT via MTD until October 2019. This affects public companies, VAT groups and some charities.

I’ve registered voluntarily for VAT, do I have to comply with MTD?

Yes, but not until April 2020, you must of course monitor your taxable turnover and register when this exceeds the current registration threshold. You may also sign up to MTD before your a mandated to.

What happens if I am behind with my VAT and have received a VAT Surcharge?

If you are behind with your VAT submissions and have received a notification from HMRC about a VAT surcharge with the last 24 months, you will not be able to join the pilot until the end of October 2018.

HMRC have sent a letter telling me I need to start reporting via MTD, but I thought the deadline wasn’t until April?

HMRC are giving all eligible businesses the opportunity to begin reporting under MTD before the 1st April deadline. We recommend signing up as soon as possible to help you become familiar with new systems and processes, ask your tax agent for help or visit the HMRC website for more information about participation, we’ve also provided a helpful video below.

So, this must mean I’m all set and don’t have to do anything else?

Not exactly. HMRC require all MTD submissions to be completed via MTD compatible software so it’s best to check their list here first to see if yours is named. If your current software isn’t listed or perhaps it’s listed as ‘in development’, contact your provider to gain confirmation of the date it will be ready. If your provider tells you it will not be MTD compliant, it’s time to start looking for one that is/will be. If however, you are using spreadsheets, there is the opportunity to continue to do so after the April 2019 deadline with some conditions.

Great, so I can keep using spreadsheets?

Yes you can, but only for a limited time. Whilst we would always recommend making the change to suitable software as soon as possible, HMRC recognises that some businesses currently using spreadsheets for their accounting records will face a big challenge in preparing for the MTD changes before the 1st April deadline. As a result they have granted permission for the use of spreadsheets combined with ‘bridging’ software which will help to convert data into an MTD acceptable format. This system is only allowable for an additional 12 months after the deadline, by which time all mandated businesses are required to be using approved software.

Is there anything else I should know?

Before signing up to MTD, ensure that any VAT related errors are corrected within your accounts, all outstanding VAT returns have been submitted and you are not behind with any payments to HMRC.

Time the change over to MTD reporting with the end of your VAT period or the end of your accounting period – this will avoid duplication of VAT and continuity errors.

Businesses will need to start recording and reporting for MTD from the net VAT period after 1st April 2019. E.g. If your next VAT period is March – May, you will be required to start using MTD for the VAT period of June – Aug 2019.

Every software solution has an MTD module that needs to be ‘turned on’. Each software provider has their own help guides available to show you how to do this. Please be aware that you need to sign up for MTD and receive your confirmation notice from HMRC before switching on the module in your software as this is not reversible!

Although always a technical requirement, it is even more important that every invoice and transaction is entered individually into your software – no longer is it acceptable to make entries based on statement values.

Each business that signs up for MTD and pays by direct debit will receive a letter or email advising that their direct debit details will be changing. This is just a notification and all changes will happen automatically – you do not have to do anything.

We will be regularly updating the help and advice section of our website with MTD related news and developments so ensure you keep checking back for the latest information. Please also feel free to contact us with your MTD queries or questions – we even offer a free initial consultation if you need more in-depth advice and guidance!